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Lululemon sees strong earnings; expands to tennis, golf clothing

Company passes US$6 billion in annual sales for first time
Lululemon has a flagship store in Vancouver at the corner of Robson and Burrard streets | Rob Kruyt

Strong earnings helped shares of Vancouver-based leisurewear retailer Lululemon Athletica Inc. (Nasdaq:LULU) jump more than 11 per cent this morning. 

The company yesterday also indicated plans for significant international expansion, as well as to expand into new product niches, such as clothing for tennis and golf.

Lululemon posted sales that were almost in line with analyst expectations, and profit that was in excess of what was expected. It announced that its board has authorized a US$1 billion share-buy-back program.

Lululemon generated US$1.2 billion in fourth quarter gross profit on US$2.1 billion in net revenue. The gross profit translates into US$3.37 in diluted earnings per share, which was higher than the US$3.28 per share that analysts had expected.  

For the 2021 fiscal year, which ended on January 30, Lululemon generated more than US$6.25 billion in revenue, up 42.1 per cent from a year ago. The US$3.6 billion in gross profit in the year was 46.4 per cent more than the approximately US$2.46 billion in profit that the company generated in its 2020 fiscal year. 

Another reason for the company's shares to jump is that Lululemon forecast its revenue next year to be between US$7.49 billion and US$7.62 billion. Analysts had expected its 2022 fiscal year revenue guidance to be around US$7.3 billion.

Lululemon said it expects to earn between US$9.15 and US$9.35 per share in the current fiscal year, which was far above the approximately US$7.69 per share that was expected.

The retailer has come under fire in recent weeks from climate change activists who believe that the company's new women's footwear line is far from sustainable because the shoes are made in coal-powered Chinese factories. 

Lululemon started selling Blissfeel running shoes on March 22.  Activists from the environmental group on the weekend held a protest outside the company's Kitsilano store, in Vancouver. To drive home the message that Blissfeel shoes were made using carbon-intensive energy, they stuffed one of the shoes full of coal. 

Despite that pushback, Lululemon CEO Calvin McDonald said on the company's March 29 conference call that he saw the shoe launch as achieving "a very broad-based positive reaction."

He revealed that his company is this week rolling out its first "tennis collection," and that this will be followed next week with what he calls a "golf collection" of clothes.

McDonald said the global supply-chain crunch could provide some headwinds for his company.

"We continue to experience delays across our global network, particularly related to transporting our products via ocean freight," McDonald said on the conference call. "As a result, we continue to lean more heavily into air freight."

Despite this, McDonald said that in the 2021 fiscal year his company "doubled" its e-commerce sales, as well as its men's business. 

"We are on track to quadruple our international business by the end of 2022," he said, referring to sales outside North America. 

The company opened a net total of 22 new stores in the past quarter, bringing its global total to 574 stores. It plans to open 70 new stores in the current fiscal year, including 40 outside North America.

Retail analyst and Retail Insider Media owner Craig Patterson said Lululemon's recent expansion into women's footwear, tennis wear and clothes for golf indicate that Lululemon is looking to explore and expand with new product categories.

"Lululemon clearly has been able to maintain consumer loyalty while growing sales despite increasing competition from brands such as Alo and Athleta," Peterson said. 

"It's remarkable to see such growth and profitability despite the pandemic, and it will be interesting to see if this continues."

Lululemon's shares had fallen more than 25 per cent between the start of the year and lows in mid-March. They have since staged a strong rebound.

The company's 52-week high is US$485.83, and it was above US$389 this morning.

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